Economics and Climate Change

The collapse of Lehman Brothers, the bailout of Merrill Lynch and AIG by Bank of America and the U.S. Federal Reserve, respectively, has made me think these past few days

In a world of global economic slowdown, possibly recession, does talking about climate change make a lot of difference? Where will corporations borrow money from if such large institutions are victims of bad judgments losing money – hell, losing their business – in order to build technologies to combat climate change?

Sometimes I wonder what all this fanfare about global warming and climate change is all about. Companies talk about reducing their greenhouse gas emissions while at the same time retaining, or even increasing, their production capacities. Businesses spring like mushrooms after a storm to offer large entities a solution to deal with climate change. Everywhere you go, you hear talks of climate change, global warming, and sustainability. Yet one mention of bank runs, financial crisis, etc., and all of it is suddenly forgotten.

It makes me wonder.

Now weeks after the fall of Lehman Brothers, the AIG buy-out, sustainability is back in business. But I just can’t help it…

Are we really doing something to mitigate climate change? Or are we just here for profit? Is the level of greenhouse gas emission in the atmosphere going down at all? Should we be just content that companies, countries, governments are doing something to reduce their emission to meet some goal set by some protocol or agreement? Isn’t there more to this?

I mean sure, it’s being a good global citizen that you’re reducing your emission. It certainly does not add to the pool of GHG’s in the atmosphere. But what do we do with the rest that’s already there?

First, let’s take a look at some facts. I’m gonna start lifting/quoting from experts now:

“Life on earth depends on energy from the sun. About 30 percent of the sunlight that beams toward Earth is deflected by the outer atmosphere and scattered back into space. The rest reaches the planet’s surface and is reflected upward again as a type of slow-moving energy called infrared radiation.”  More at:  http://environment.about.com/od/globalwarming/a/greenhouse.htm

As you can see, the greenhouse effect is essential for our continued survival here on Earth. However, here’s the catch:

  • Burning natural gas, coal and oil —including gasoline for automobile engines—raises the level of carbon dioxide in the atmosphere.
  • Some farming practices and land-use changes increase the levels of methane and nitrous oxide.
  • Many factories produce long-lasting industrial gases that do not occur naturally, yet contribute significantly to the enhanced greenhouse effect and “global warming” that is currently under way.
  • Deforestation also contributes to global warming. Trees use carbon dioxide and give off oxygen in its place, which helps to create the optimal balance of gases in the atmosphere. As more forests are logged for timber or cut down to make way for farming, however, there are fewer trees to perform this critical function.
  • Population growth is another factor in global warming, because as more people use fossil fuels for heat, transportation and manufacturing the level of greenhouse gases continues to increase. As more farming occurs to feed millions of new people, more greenhouse gases enter the atmosphere.

Hmm… man-made GHG emissions seem to be the culprit then.

Next, let’s take a look at what people are doing. I’ll do this by giving a company example – an industry leader when it comes to climate change – General Electric Company:

“Ecomagination is a business initiative to help meet customer demand for more energy-efficient products and to drive reliable growth for GE, growth that delivers for investors long term. Ecomagination also reflects GE’s commitment to invest in innovative solution to environmental challenges and delivers valuable products and services to customers while generating profitable growth for the company.”  More at:  http://ge.ecomagination.com

Great! Good job GE! You’re doing something for the environment!

GE says a lot of things of how good a global citizen they are. They’ve even got a page dedicated to community and philanthropic activities. Excellent! Humane, at the very least. Laudable, certainly. I read through such stuff regularly because it’s part of my job. Sometimes, even I think that companies are just copying words from each other. Yet in all this, there was only one mention of anything remotely related to tree planting ever in their website, and it was part of a list of charitable donations.

GE’s example is certainly inspirational. But did you notice how many times they used words related to revenues and profit? Wow! Are we back to that question again? Are we here for Earth’s environment or for profit? While GE’s innovative designs are geared towards energy efficiency to decrease the emissions of GHG, what happens to the excess GHGs in the atmosphere? Huh! Yep, we’re back to our old questions again.

So we go to the last topic of our discussion here:

“Forests are carbon stores, and they are carbon dioxide sinks when they are increasing in density or area. In Canada’s boreal forests as much as 80% of the total carbon is stored in the soils as dead organic matter. Tropical reforestation can mitigate global warming until all available land has been reforested with mature forests. However, the global cooling effect of carbon sequestration by forests is partially counterbalanced in that reforestation can decrease the reflection of sunlight (albedo). Mid-to-high latitude forests have a much lower albedo during snow seasons than flat ground, thus contributing to warming. Modeling that compares the effects of albedo differences between forests and grasslands suggest that expanding the land area of forests in temperate zones offers only a temporary cooling benefit.”  More at:  http://en.wikipedia.org/wiki/Carbon_sink

There you go!

I’m not saying that what companies, like GE, are doing is not at all productive. It is! However, everyone is so focused on reducing GHG emissions that they forget that there’s still the fact that we’re still emmitting greenhouse gases maybe even forgetting that the once lush forest that we had are no longer available to us – whole forests denuded, at worst, or just partially deforested, at best.

I believe that those companies that offer carbon neutrality by allowing people to offset their emissions through fundraising for reforestation (or other initiatives that “create carbon sinks”) should be given a lot of support, too. They’re the other factor that completes the equation to solving our climate change crisis right now.

So where does economics fit right here? It’s been right in front of you all the time. Climate change creates risks – how will that affect the global market? Climate change creates opportunities – how does that affect companies, countries, organizations, etc? Profit, risk, regulations, opportunities, insurance, etc… wow! Sounds like a new generation of economic evolution to me. Step aside, Keynes and Adam Smith. This brand of economics seems to be entirely different. You’re dealing with the natural environment here!

Sources:

http://en.wikipedia.org/wiki/Air
http://www.ge.com/company/index.html
http://en.wikipedia.org/wiki/Carbon_sink
http://ge.ecomagination.com
http://environment.about.com/od/globalwarming/a/greenhouse.htm

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